Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Abcam Plc (LON:ABC), with a market cap of UK£2.76b, often get neglected by retail investors. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at ABC’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into ABC here. Check out our latest analysis for Abcam
Is ABC’s debt level acceptable?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. For Abcam, investors should not worry about its debt levels because the company has none! It has been operating its business with zero debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with ABC, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can ABC pay its short-term liabilities?
Since Abcam doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of UK£32.60m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.4x. However, anything above 3x is considered high and could mean that ABC has too much idle capital in low-earning investments.
ABC has zero-debt in addition to ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, though, some degree of debt may also boost earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how ABC has performed in the past. I suggest you continue to research Abcam to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ABC’s future growth? Take a look at our free research report of analyst consensus for ABC’s outlook.
- Valuation: What is ABC worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ABC is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.